I’m an impact investor and and I’ve been seeing figures like $700 billion ($2 trillion?!!) for a while now. Whatever. It’s not going to meet the SDGs or solve climate change, because >90% of that money is huddled at the market rate end of the returns spectrum. Nobody really knows how it’s distributed, but my own experience backing high-impact enterprises and everything I’ve heard and read leaves me convinced that the vast majority of it is looking for rates of return that look pretty much like those of mainstream investors. Certainly no one has proven otherwise.
If that’s true and if we define impact as “material change in the world that would not have happened otherwise,” the impact of this kind of money is marginal: things that generate market rates of return happen anyway. There’s little additionality. This is a sideshow.
Market-based innovations where we works typically need 3 kinds of money over time: Free Money - grants; Cheap Money - concessionary debt and equity; and Real Money - market-rate debt and equity.
If you’re an entrepreneur, you need to assemble enough Free and Cheap money to get across the desert to reach the river of Real Money. That’s the only way anything will scale.
Grants can only get you so far - you need a big chunk of Cheap Money to get the desert to the river of Real Money: Cheap money is what makes things happen that would not have otherwise.
Entrepreneurs in Africa and elsewhere have learned that there isn’t nearly as much Cheap Money as they were led to believe. What’s billed as impact investing money is mostly looking for market rates of return. it’s really hard to get across the desert.
Ironically, this article cites Komaza in Kenya as an important impact investing success, when is mostly demonstrates the opposite. We funded Komaza with grants, equity, and debt (cheap) and worked closely with them over 10 years: it almost died half a dozen times. Crossing the desert was brutal. “Impact investment” was mostly a mirage.
Impact investing money is Cheap Money or it really isn’t much of anything. I have no idea how much is out there. More to the point, nobody else does either.
COMMENTS
BY Kevin Starr
ON March 25, 2021 07:56 PM
I’m an impact investor and and I’ve been seeing figures like $700 billion ($2 trillion?!!) for a while now. Whatever. It’s not going to meet the SDGs or solve climate change, because >90% of that money is huddled at the market rate end of the returns spectrum. Nobody really knows how it’s distributed, but my own experience backing high-impact enterprises and everything I’ve heard and read leaves me convinced that the vast majority of it is looking for rates of return that look pretty much like those of mainstream investors. Certainly no one has proven otherwise.
If that’s true and if we define impact as “material change in the world that would not have happened otherwise,” the impact of this kind of money is marginal: things that generate market rates of return happen anyway. There’s little additionality. This is a sideshow.
Market-based innovations where we works typically need 3 kinds of money over time: Free Money - grants; Cheap Money - concessionary debt and equity; and Real Money - market-rate debt and equity.
If you’re an entrepreneur, you need to assemble enough Free and Cheap money to get across the desert to reach the river of Real Money. That’s the only way anything will scale.
Grants can only get you so far - you need a big chunk of Cheap Money to get the desert to the river of Real Money: Cheap money is what makes things happen that would not have otherwise.
Entrepreneurs in Africa and elsewhere have learned that there isn’t nearly as much Cheap Money as they were led to believe. What’s billed as impact investing money is mostly looking for market rates of return. it’s really hard to get across the desert.
Ironically, this article cites Komaza in Kenya as an important impact investing success, when is mostly demonstrates the opposite. We funded Komaza with grants, equity, and debt (cheap) and worked closely with them over 10 years: it almost died half a dozen times. Crossing the desert was brutal. “Impact investment” was mostly a mirage.
Impact investing money is Cheap Money or it really isn’t much of anything. I have no idea how much is out there. More to the point, nobody else does either.